Why can't millennials afford houses?

Millennials have been at a disadvantage since the beginning Compared with these generations, millennials have more debt, a lower net worth, and a worse chance of making more than their parents. Those factors, particularly the rise in student debt, have prevented millennials from getting a home.

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After graduating from high school in 2007, Gonsalves settled into a job as a sales rep for a wireless provider. The money was "pretty good" at the time, Gonsalves said, but then the housing market went bust. Despite his hard work, the slow recovery from the Great Recession hindered his early career. By his early 30s, Gonsalves had managed to get himself on steadier financial footing. He had a job as a bartender in Rhode Island and solid credit. After scraping and clawing for more than a decade, Gonsalves felt that his lifelong dream of homeownership was finally within reach. Then the COVID-19 pandemic struck, throwing the economy into chaos. Gonsalves began looking for another job after the bar where he worked shut down. He eventually landed one as a mortgage processor. But by the time he was able to restart his search for a condo, the housing market had already kicked into overdrive: Everyone from first-time buyers to giant Wall Street investors were scrambling to get their hands on homes. The one-two punch of soaring home prices, followed by higher mortgage rates, made buying feel "impossible," Gonsalves told me. "COVID happens, and it's like, 'OK, now we're doing this all over again,'" he said. "You get so far ahead, and then you end up a few steps back again." For most millennials, born between 1981 and 1996, the path to homeownership has been fraught with pitfalls and false starts. Members of the generation — the oldest of whom are 41 — have built less wealth than previous generations, delayed life milestones like getting married or starting a family, and lived with their parents for longer periods of time. Add it all up, and the homeownership rate among millennials is lagging that of previous generations. Despite their desire to settle down in homes of their own, millennials face a bleak outlook for one big reason: There simply aren't nearly enough homes for the 72.1 million members of their generation. In the decade following the financial crisis, homebuilders were reluctant to produce more homes, contributing to a now massive housing shortage. Even as the pandemic housing-market madness fades, millennials have to contend with a new host of housing headaches: higher borrowing rates, persistent inflation, and rising rents. Homebuilders, who were finally ramping up construction as profits soared during the pandemic, are pulling back once again as fears of a recession grow, providing little hope for salvation from the housing-supply crunch. In many ways, Gonsalves' story is emblematic of a cohort of millennials who have been screwed over by economic forces outside their control since they entered adulthood. Gonsalves, who has abandoned his home search, framed these struggles in plain terms: "It's hopeless."

Millennials have been at a disadvantage since the beginning

Sure, every generation faces struggles as they start out on their own, and, yes, millennials are finally bringing in the same kind of income as their parents did. But the slow start to their careers has left millennials in a more precarious financial position than that of baby boomers or Gen X before them. Compared with these generations, millennials have more debt, a lower net worth, and a worse chance of making more than their parents. Those factors, particularly the rise in student debt, have prevented millennials from getting a home. More than 20% of the decline in young-adult homeownership between 2005 and 2014 can be attributed to mounting student-loan debt, the Federal Reserve found in a 2019 report. Then there's the issue of the housing shortage. Builders simply haven't been producing enough homes to meet demand. From 2010 to 2019, builders started roughly 21,000 single-family homes per 1 million people each year, barely half as much as they were building in each of the three decades prior. That construction slowdown came about as millennials were ready to hop into homes of their own. The cohort made up 43% of homebuyers in 2021, the most of any generation, a recent report from the National Association of Realtors found. But that statistic is simply a function of the fact that millennials are now the largest generation in the country, Jessica Lautz, the vice president of demographics and behavioral insights for the National Association of Realtors, told me. The millennial homeownership rate still lags that of other generations — at the age of 30, just 42% of millennials owned a home, compared with 48% of Gen Xers and 51% of boomers at the same age. "With demographic trends, we knew this was coming," Nicole Bachaud, a senior economist at Zillow, told me. "And still, you look at new construction trends: Up until 2021, new construction has been way down since the end of the Great Recession."

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Even the types of homes being built have helped lock out prospective new homeowners. So-called starter homes, which are ideal for first-time buyers, are growing ever more elusive as builders try to keep up with land and materials costs, government fees, and zoning restrictions that require minimum home sizes. In 2019, just 7% of homes constructed were considered entry level, compared with 40% of new homes in 1980, according to the US Census Bureau. So as the majority of millennials enter their early 30s, the peak years for first-time homeownership, they're finding the homes simply aren't there.

The past 2 years have set millennials back even further

As if a decade of economic turmoil weren't enough, right as millennials were catching back up, another disaster hit: COVID-19. A surge in demand fueled by record-low mortgage rates and the rise of remote work sent home prices skyrocketing, with the median sale price in the US jumping more than 36% from the second quarter of 2020 to the same period this year. While existing homeowners can reap the rewards of these increasing home values when looking for their next house, first-time buyers don't have that advantage. "The lack of housing inventory has really pushed up prices to a point where it's very difficult for a buyer to consider moving into their first home right now without significant family help, generational transfers of wealth, or really high incomes," Lautz said. Surging rents across the country have also made it more difficult for millennials to stockpile cash for a home. Earlier this year, the national median rent was up a whopping 17% year over year and has since climbed to nearly $1,900 a month, according to Realtor.com. Millennials aren't competing only with repeat buyers for this dwindling stock. They're also facing a new breed of competition their parents didn't have to deal with: deep-pocketed investors. In the fourth quarter of 2021 alone, investors bought more than 18% of homes sold, a record high, according to the brokerage Redfin. Investors typically covet less expensive homes, the Redfin economist Sheharyar Bokhari said. That often puts them in direct competition with first-time buyers. Another key group standing in the way of millennials' dreams of homeownership is baby boomers. Boomers are not only staying in their homes longer than previous generations — reducing the number of homes on the market — but also going head-to-head with millennials over homes as they seek to downsize in their later years. The share of recent buyers who are 60 years and older grew 47% from 2009 to 2019, meaning millennials "face more competition from their parents' and grandparents' generations than their predecessors did," a Zillow study found. Then there are the macroeconomic factors limiting millennials' prospects. Mortgage rates have more than doubled from the record lows seen earlier in the pandemic and are now at the highest levels since the 2008 housing crash, adding hundreds of dollars to a monthly mortgage. For example, the median-priced home in the US is about $440,000, according to census data. If you bought a home at that price and put 20% down in late 2020, when the average 30-year mortgage rate bottomed out at about 2.7%, your monthly mortgage payment would have been $1,428, according to Insider's mortgage calculator. Today, with the average mortgage rate at nearly 6.86%, according to Bankrate, you'd be paying $2,309 a month, a difference of about $880.

There's little hope of solutions for millennials in the years ahead

Some millennials — those who have help from family and friends, for instance, or who secured high-paying jobs and can afford steeper home prices — have come out ahead despite the challenges. Twenty-eight percent of recent first-time buyers used a gift or loan from family or friends to afford a down payment, and younger millennials are more likely to use such help than any other generation, according to the National Association of Realtors. Those people are now building equity, achieving a dream that previous generations took as all but guaranteed. The rest are stuck in a doom loop of high prices and little inventory. What millennials really need is more housing supply, but that won't come quickly. Homebuilders are slowing production and walking away from deals to buy land, which will cause more delays when demand inevitably surges again. Millennials can't afford to wait for Father Time to do its job, either. By the time boomers and Gen Xers age out of their homes (or die), the younger generation will have missed out on years of wealth building.

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"That's where we're going to see more existing home inventory opening up," Bachaud said. "But that's a long time away." Jerome Powell, the chair of the Federal Reserve, told reporters last week that the housing market would probably have to go through a correction so that "people can afford houses again." That may have sounded like welcome news to millennials and Gen Zers who have been rooting for home prices to fall. But the reality is that the Fed's method of achieving that housing correction — hiking up interest rates — aims to bring down demand for homes, not increase supply. Addressing the supply side of the equation over the long term is a more complicated task. In May, the Biden administration unveiled an action plan aimed at building more homes. A key part of the plan tackles NIMBYism — the "not in my backyard" attitudes that have stymied housing development for decades — by rewarding jurisdictions that reform zoning policies, the laws that govern where people can build. The growing YIMBY, or "yes in my backyard," movement has also been notching victories over the past few years. A new California law last year legalized duplexes in areas that once allowed only single-family homes, and jurisdictions across the country are joining the state in embracing the creation of accessory dwelling units, or tiny backyard homes that hold the potential to significantly increase the number of houses in the US. That's not to say that easing zoning restrictions is the silver bullet for housing supply, since, as the Bloomberg Opinion columnist Justin Fox noted in a recent report on Minneapolis' elimination of single-family zoning four years ago, builders ultimately still need to get projects financed and built. It's a start. But all these solutions — from reforming zoning to waiting on boomers to die — are long-term visions, leaving many millennial homebuyers relying on old-fashioned luck in the meantime. Danielle Stine, a 30-year-old property manager who lives near Philadelphia, gave up her home search after her 12th offer — a bid for a three-bedroom, one-bathroom house on a quarter acre of land — was rejected in June. After months of rushed showings, rejections, and budget stretching, that defeat was the final straw. "I've been through a lot in my life, and it was honestly one of the worst experiences," Stine told me. "It was depressing." Then, a month later, her agent called with good news: The winning bid had fallen through. Stine and her husband went back to the negotiating table, where they finally reached a deal. They've spent the past few months living out their dream of repainting cabinets and putting down new flooring in a house they can call their own.

"We got lucky," Stine said, repeating herself for emphasis: "We got lucky."

James Rodriguez is a real estate reporter for Business Insider.

businessinsider.com - Sorry, millennials, you're never getting a good home - Business Insider

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